By Dan Berthiaume
Predictions for the global business climate in 2012 are decidedly mixed, with most observers predicting another year of overall mediocre performance, some forecasting a negative impact from a worsening European debt crisis, and a smattering of optimists seeing some improvement from 2011. However, within this generally moribund expert view of how business will proceed in 2012, the outsourcing of finance and accounting and procurement shines as a potential bright spot amid shades of gray.
Everest Group has released a new report, 2012 Market Predictions, that includes specific analysis of the likely track finance and accounting outsourcing (FAO) and procurement outsourcing (PO) will follow in 2012. Both markets are expected to undergo double-digit growth actual cash value (ACV), driven by a variety of factors. Following are brief overviews of how each area of BPO is predicted to perform during the next 12 months.
FAO – Long Sales Cycles Don’t Impede Growth
Although continued buyer caution will result in long sales cycles and a phased, rather than “big bang,” approach, Everest predicts the ACV of the global FAO market will reach $4.5 to $5 billion USD, representing year-over-year growth of roughly 15%. Organic growth from expansions and renewals will produce a large amount of this growth, as FAO contracts with a total cash value (TCV) of $2.5 billion USD will come up for renewal this year.
Everest foresees the healthcare, financial services, and energy and utility industries and mid-market firms as being major FAO drivers, with India-to-India domestic BPO and the Middle East and Asia-Pacific regions also driving growth. Cost arbitrage will remain a major goal of FAO programs, but buyers have developed the larger expectation of transforming processes to obtain best-in-class performance.
Drilling into the types of FAO services buyers will seek in 2012, Everest forecasts demand for analytics and other specialized services such as regulatory compliance and internal audit will continue growing, and that “mature themes” such as outcome-based and transaction-based pricing will become more prevalent in FAO contracts.
On the FAO provider side, Everest expects developments including the creation of differentiated offerings through industry-specific solutions and go-to-market strategies, specialized process offerings (such as Sarbanes-Oxley compliance), end-to-end services, and bundled FAO-PO packages. Everest also predicts that BPO providers will target small- and mid-sized clients, as well as emerging economies, and that strong merger & acquisition activity observed in the BPO provider market during 2011 will continue at a slower pace in 2012.
PO – Managed Spend to Reach $250B
Everest predicts the global PO market will reach an ACV of $1.8 billion in 2012, representing managed spend of $250 billion USD and year-over-year growth of about 20%. The manufacturing, CPG and retail industries are all expected to continue leading PO adoption, but a resurgence is also expected in the high tech and telecom and energy and utility sectors.
While the US will continue as the dominant PO market, growth should increase in the UK and continental Europe, with Central and South America joining Asia-Pacific as regions with low bases but the fastest growth. Similar to FAO, organic growth should play a major role in the expansion of PO, with $550 million USD in contracts up for renewal this year.
On the buy side, Everest expects buyers to take an end-to-end PO approach, concentrating and source-to-contract and procure-to-pay rather than discrete processes. Non-core direct spend categories such as maintenance, repair and overhaul should increasingly become part of PO contracts, and those contracts will likely expand to cover other supply chain areas such as order fulfillment and inventory management. CFOs are expected to increasingly get involved in PO negotiations, leading to deals with FAO-PO bundling (see above) around procure-to-pay.
On the sell side, Everest forecasts acquisitions and partnerships to blur the distinction between source-to-contract- and procure-to-pay-focused providers, with FAO service providers, sourcing advisory firms, supply chain management firms, and mature procurement shared services organizations all entering the PO market in increasing numbers. The PO market will continue to be dominated by major players Accenture, ICG Commerce and IBM, but contenders from the next rung of PO providers are expected to increase their presence during 2012.